Stock Options and Other Share-Based Compensation

Compensation expense for stock options for 2018, 2017 and 2016 was $105 ($83 after tax), $137 ($89 after tax) and $271 ($176 after tax), respectively. In addition, compensation expense for stock appreciation rights, restricted stock, performance shares and restricted stock units was $60 ($47 after tax), $231 ($150 after tax) and $371 ($241 after tax) for 2018, 2017 and 2016, respectively. No significant stock-based compensation cost was capitalized at December 31, 2018, or December 31, 2017.

Cash received in payment for option exercises under all share-based payment arrangements for 2018, 2017 and 2016 was $1,159, $1,100 and $647, respectively. Actual tax benefits realized for the tax deductions from option exercises were $43, $48 and $21 for 2018, 2017 and 2016, respectively.

Cash paid to settle performance shares, restricted stock units and stock appreciation rights was $157, $187 and $82 for 2018, 2017 and 2016, respectively.

Awards under the Chevron Long-Term Incentive Plan (LTIP) may take the form of, but are not limited to, stock options, restricted stock, restricted stock units, stock appreciation rights, performance shares and nonstock grants. From April 2004 through May 2023, no more than 260 million shares may be issued under the LTIP. For awards issued on or after May 29, 2013, no more than 50 million of those shares may be in a form other than a stock option, stock appreciation right or award requiring full payment for shares by the award recipient. For the major types of awards issued before January 1, 2017, the contractual terms vary between three years for the performance shares and restricted stock units, and 10 years for the stock options and stock appreciation rights. For awards issued after January 1, 2017, contractual terms vary between three years for the performance shares and special restricted stock units, five years for standard restricted stock units and 10 years for the stock options and stock appreciation rights. Forfeitures for performance shares, restricted stock units, and stock appreciation rights are recognized as they occur. Forfeitures for stock options are estimated using historical forfeiture data dating back to 1990.

The fair market values of stock options and stock appreciation rights granted in 2018, 2017 and 2016 were measured on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions:



	Year ended December 31
	2018			2017			2016
Expected term in years¹	6.5			6.3			6.3
Volatility²	21.2		%	21.7		%	21.7		%
Risk-free interest rate based on zero coupon U.S. treasury note	2.6		%	2.2		%	1.6		%
Dividend yield	3.8		%	4.2		%	4.5		%
Weighted-average fair value per option granted	$	18.18		$	15.31		$	9.53

¹Expected term is based on historical exercise and post-vesting cancellation data.

²Volatility rate is based on historical stock prices over an appropriate period, generally equal to the expected term.

A summary of option activity during 2018 is presented below:



	Shares (Thousands)		Weighted-Average Exercise Price			Averaged Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2018	103,765			$	97.40
Granted	4,665			$	125.35
Exercised	(12,991	)		$	88.11
Forfeited	(715	)		$	115.25
Outstanding at December 31, 2018	94,724			$	99.92	5.07		$	1,101
Exercisable at December 31, 2018	81,074			$	99.34	4.60		$	933

The total intrinsic value (i.e., the difference between the exercise price and the market price) of options exercised during 2018, 2017 and 2016 was $506, $407 and $240, respectively. During this period, the company continued its practice of issuing treasury shares upon exercise of these awards.

As of December 31, 2018, there was $53 of total unrecognized before-tax compensation cost related to nonvested share-based compensation arrangements granted under the plan. That cost is expected to be recognized over a weighted-average period of 1.6 years.

At January 1, 2018, the number of LTIP performance shares outstanding was equivalent to 3,090,793 shares. During 2018, 1,491,141 performance shares were granted, 746,450 shares vested with cash proceeds distributed to recipients and 165,754 shares were forfeited. At December 31, 2018, performance shares outstanding were 3,669,730. The fair value of the liability recorded for these instruments was $258, and was measured using the Monte Carlo simulation method.

At January 1, 2018, the number of restricted stock units outstanding was equivalent to 1,236,500 shares. During 2018, 819,769 restricted stock units were granted, 222,946 units vested with cash proceeds distributed to recipients and 95,844 units were forfeited. At December 31, 2018, restricted stock units outstanding were 1,737,479. The fair value of the liability recorded for the vested portion of these instruments was $125, valued at the stock price as of December 31, 2018. In addition, outstanding stock appreciation rights that were granted under LTIP totaled approximately 4.2 million equivalent shares as of December 31, 2018. The fair value of the liability recorded for the vested portion of these instruments was $70.